TE Connectivity Ltd. (TEL) reported first-quarter fiscal 2015 adjusted earnings per share of 98 cents, which surpassed the Zacks Consensus Estimate of 90 cents by 8.9% and also came above the prior-year quarter figure of 82 cents by 19.5%. Shares of the company went up by 6.93% during the pre-market trading session.
Continued strength in transportation market acted as the primary growth driver. This apart, the company’s appliances business, meant for the harsh environment, had higher margins compared to other businesses and this was also a positive. Further, the company is focused on cost-containment initiatives like its TE Operating Advantage (TEOA) strategy, which leverages on operational efficiency by eliminating waste and boosting the operating margin.
On a GAAP basis, the company reported earnings per share of $1.14 per share, up from 85 cents reported in the prior-year quarter.
Quarter in Details
Total revenue in the quarter increased 4.2% year over year to $3,466 million but fell short of the Zacks Consensus Estimate of $3,504 million. The company’s organic revenues grew about 3% in the quarter.
Revenue growth was attributable to strong performance of the end markets including automotive, commercial transportation, commercial aerospace and appliances.
On the other hand, TE Connectivity’s total operating margin in the quarter stood at 13.8%, as compared to 14.4% in the year-ago quarter.
As per the segments, revenues in the Transportation Solutions segment increased 11.9% year over year to $1,612 million. The segment’s operating margin dipped 242 bps year over year to 18.8%.
Industrial Solutions segment revenues were up 2.8% year over year to $784 million. The segment reported an operating margin of 11.4%, declining 160 bps from the previous year’s figure.
Network Solutions segment revenues declined 1.3% year over year to $704 million. However, the operating margin for the quarter increased 220 bps year over year to 8.7%.
Consumer Solutions segment revenues decreased 10.7% year over year to $366 million while the operating margin declined 270 bps to 6.6%.
TE Connectivity’s total order level for the quarter increased 9% year over year to $3.7 billion driven by major contribution from the Subsea Communications (‘SubCom’) business. Excluding SubCom, the order level rose 4% on a year-over-year basis, whereas book-to-bill ratio came in at 1.03.
Liquidity
TE Connectivity exited the quarter with cash and cash equivalents of $868 million, as compared to $2,457 million as on Sep 26, 2014.
The company’s free cash flow for the quarter came in at $162 million against $266 million as on Dec 27, 2013.
BNS Business Divestiture
In conjunction with the earnings release, TE Connectivity declared that it has penned a $3.0 billion deal with CommScope Holding Company, Inc. (COMM) for divesting its Broadband Network Solutions (‘BNS’) business, which is a part of its Network Solutions division. The business did not include TE Conncectivity’s Subsea Communications or Data Communications businesses. The deal is anticipated to complete by December this year, upon fulfillment of customary closing conditions.
Outlook
TE Connectivity expects second-quarter adjusted earnings per share in the range of 98 cents–$1.02 and revenues in a band of $3.55–$3.65 billion.
For fiscal 2015, the company reiterated its adjusted earnings per share in the range of $4.05 – $4.35. TE Connectivity revised its revenues guidance and now expects it to be in the range of $14.45 to $14.85 billion (previous one being $14.7–$15.3 billion).
The above guidance includes the results of the company’s BNS Business.
Also, TE Connectivity expects to report double digit adjusted EPS growth in fiscal 2015 driven by the improving SubCom market and continued momentum in its harsh environment businesses.
Our View
Although TE Connectivity missed on revenues again due to continues weakness in the Network Solutions and Consumer Solutions divisions, another earnings beat by the company is surely encouraging. Also, the company’s decision to sell its Network Solutions division will pave the way for strengthening the top line in the future.
TE Connectivity currently has a Zacks Rank #3 (Hold). Better-ranked stocks that look promising in the industry include AU Optronics Corp. (AUO), Rogers Corporation (ROG) and Intricon Corp. (IIN). All these stocks sport a Zacks Rank #1 (Strong Buy).
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